Do you know what your money is doing tonight?
If you’re in favour of protecting the environment and avoiding investments in the military or the polluting industries, then here’s the great news: you can now structure your pension so that your money is invested to reflect your principles.
Don’t just vote with your feet – vote with your wallet!
Ethical investing is not new. In fact, it has been around for 50 years. However, it’s only in the last few decades, with the focus on climate change and protecting the planet, that it has really taken off.
There are already over 200 ethical funds on the market, and the group of pension savers who want to ‘vote with their money’ is rapidly rising.
These aren’t ‘boutique’ or high-risk investment products, either. They are mainstream funds, as you can see from some of the household names that manage them: Aviva, Legal & General, Aegon, Nest, Scottish Widows, Standard Life.
Ethical investing is now an established, well accepted way to save.
The first question our clients often ask when they consider ethical pension investments is this: how do ethical pension funds set out their investment strategy?
It’s a very good question.
The answer is: scrupulously.
They identify the companies where they will invest using two processes: ‘positive screening’ and ‘negative screening’.
This harks back to the day when it all began, with the launch of the first ever ethical investment fund. When the ‘Pax’ fund was launched in 1971, it tapped into popular sentiment in the US at the time.
‘Pax’ is Latin for peace, and the Pax fund refused to invest in any company profiting from the Vietnam War. This allowed the new generation of pacifists to ‘vote with the flowers in their hair’ and take a meaningful stance.
Meanwhile, back here in 2021, positive screening identifies companies that ‘test positive’ for strict ethical standards, and are pro-environment: manufacturers of environmental products, those who encourage biodiversity, or promote renewable energies.
They may also identify companies that do their bit for their workforce and the local environment wherever they are, through fair treatment of employees, providing healthcare, even building schools and hospitals.
With negative screening, on the other hand, fund managers identify companies, and even whole industrial sectors, to avoid. They refuse to invest in the well-known unethical industrial sectors such as tobacco, alcohol, meat, nuclear power, defence, or intensive farming. Activities that can be avoided include deforestation, exploitation of workers, animal testing, and fracking.
These days, the idea of putting your money to work for the good of the planet has become attractive to many investors, in particular the ‘Millennial Generation’, younger savers who are now in their late 20s and 30s.
But a word of warning!
Care and advice are needed, because green investments can be – and pardon the pun here - far from black and white.
There are quite a few ‘ethical’ funds that still invest in industries that would not qualify, in most people’s minds, as strictly ethical, such as fossil fuel manufacturers, or the oil and gas industry.
They claim that those stocks are central to strong investment growth, or that the big oil companies are investing more in researching wind power and alternative energies than smaller players. Sometimes they also claim to invest only in the ‘least worst’ companies, who have no track record of accidental pollution. They avoid Exxon, for example, due to the spillage from the Exxon Valdez off Alaska in 1989, or they avoid Amoco since the Amoco Cadiz had a massive spillage off Brittany in 1978. (Amoco no longer exists, by the way, they were absorbed into BP in 1998).
As you see, there are times when it seems that some companies are draping a bit of foliage over their investment fund and, well, pushing their luck a bit by calling it ethical. It’s a practice known in financial circles as ‘greenwashing’.
This is why it’s important to come to us. We check the various ethical funds on the market to see exactly how ‘ethical’ they are. Funds range from ‘light green’ to ‘dark green’ depending on the degree of their commitment to the issues.
We can lift the lid and look inside each fund. We can seek out the funds that align perfectly with your investment preferences.
Have you read anything here that makes you ‘green’ with envy?
Give us a call, and we can tell you more!
The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Ancojada Limited is not authorised or regulated to provide financial advice.
All financial advice is provided by other regulated businesses.